Many people in HR management circles know the power of handing out gifts to employees. It sounds like a wonderful idea: “hey, Bob’s been a really great employee this year, let’s get him a (fill in the blank with a nonmonetary gift here) to reward him!” To be certain, rewarding employees who go beyond the pale for the company is a good idea. It demonstrates that you’re paying attention and that extraordinary effort will be recognized and rewarded.
However, when the next tax season rolls around, Bob might not like that big fancy whatever you got him as much when it shows up as a “benefit in kind” on his taxes that he has to account for as a part of his income. As it turns out, there are tax implications to corporate gifting that need to be taken into consideration, or else they might come back to surprise an employee unpleasantly later on.
What is a Benefit in Kind?
For the purpose of explaining the idea of a benefit in kind to employees in a succinct manner, the term benefit in kind typically refers to any nonmonetary benefit that an employee might receive which has a cash value or could be converted to cash. This may also be referred to as notional pay.
Some common examples of Benefits in Kind include (but are not limited to):
- Use of a company car for personal matters.
- Gift vouchers.
- Club subscriptions.
- Free or subsidised accommodations.
- Low-interest loans.
- Employer-provided healthcare cover.
A general rule of thumb to follow when determining if something should be added to the employee’s taxable income is to ask yourself if the gift is something that the employee would otherwise have to pay to get, or provides some form of financial relief to the employee.
Rules Governing the Taxing of Benefits in Kind
There are many rules governing the taxation of benefits in kind (BIK), some of which are particular to a specific type of benefit, such as a business providing a company car for personal use.
In determining when to deduct PRSI and PAYE on notional pay, you should, according to the welfare.ie page on benefits in kind, calculate and deduct PRSI and PAYE “in the pay period for which the non-cash benefit is received and remitted to the Collector-General as normal.” However, if a benefit is long-term in nature, such as the provision of a company car, the annual value of the benefit can be distributed out over the course of the employee’s pay periods throughout the year for the pay periods where the benefit was made available.
Another important thing to consider is whether or not a given employee’s annual compensation exceeds €1,905. If an employee’s income is less than €1,905 (including their non-cash BIKs), they would not be liable for income tax on non-cash benefits in kind provided by your company. However, this does not apply in regards to those who hold the title of Director, as these personnel are liable for taxes no matter what their level of income actually is.
Another notable exception to the rules is for one-time benefits worth less than €250. If a non-cash benefit is worth less than 250 Euros and the employee only gets one such benefit in a year, then employers do not have to apply PRSI and PAYE to that benefit. Should said benefit be recurring, however, then PRSI and PAYE will have to be applied as normal.
If, as an employer, you cannot find the exact value of a benefit, then you can make arrangements with the Irish Tax and Customs Revenue department to establish a best estimate value of a benefit to use in determining how much PRSI and PAYE to deduct. This also applies to the calculation of minor benefits that are given on an irregular basis.
Navigating the maze that is the tax law in Ireland can be confusing, however, you don’t have to try to tackle it all alone. Learn more about benefits in kind and other important employee compensation and benefits issues by contacting Simon Shirley Advisors today!